Q&A: finance

This ratio is called DSCR (debt service coverage ratio), after its English abbreviation. The idea is simple: how many times the monthly cash flow before loan payments exceeds one monthly loan payment (principal + interest).

DSCR = cash flow before loan payments ÷ loan payment for the same period (principal + interest).

If below 1, the payment is larger than the cash flow; if close to 1, there is no reserve and even a small fluctuation breaks the payment. What threshold a bank will require depends on the contract and the bank; ask the bank itself (it is not given here as a rule).

Example (compiled by the author, hypothetical). The "Yangi non" bakery takes a loan of 240 million soums: 36 months, 24% annual nominal rate (2% per month), equal payments (annuity). The monthly payment formula:

payment = amount × i ÷ (1 − (1 + i)^−n), where i = 0.02, n = 36.

Calculation (checked with Python): payment ≈ 9.416 million soums. Over 36 months a total of ≈ 338.97 million soums is paid, that is, interest ≈ 98.97 million soums. In the first month 4.8 million soums of the payment is interest (240 × 0.02), the rest is principal.

Before the loan payment the bakery generates an average of 13.0 million soums of net cash flow per month (including the additional cash from the equipment). Then:

DSCR = 13.0 ÷ 9.416 ≈ 1.38.

After the payment 13.0 − 9.416 ≈ 3.58 million soums per month remains. Now the "what if" questions:

So this bakery can cover the payment until cash flow falls by about 27.6%. That is its "safety margin". You need this figure before the bank does: could you pay in a month when revenue is 20% below plan?

A reverse calculation is useful too. If you want a DSCR of at least 1.25 for yourself (this is not a bank requirement but your own personal reserve rule), the largest payment is 13.0 ÷ 1.25 = 10.4 million soums. Such a payment over 36 months at 2% per month corresponds to a loan of ≈ 265 million soums. So 240 million soums fits within the reserve you set yourself.

Note: take not profit but cash flow itself: add back expenses that do not involve cash outflow, such as depreciation, but deduct taxes and other mandatory payments. For a seasonal business, look at the worst month too.

Source: general financial calculation formulas (annuity payment, debt service coverage ratio). The example was compiled by the author.

The simplest way to value a small business is to answer two questions: "how much profit does this business make a year, and what minimum annual return do I expect on my own money?" If the profit stays roughly the same from year to year, a rough value is found like this:

Value ≈ stable annual profit ÷ the annual return you expect.

The 300 million soums the seller is asking means a 20% annual return on 60 million of profit (60 ÷ 300). Now ask yourself: how much would you earn if you put this money somewhere else, and how risky is a small bakery? The higher the risk, the higher the return you expect, and so the lower the price you would agree to pay.

But first the profit has to be "cleaned". Very often the owner of a small business works from dawn to dusk himself and pays himself no salary. If you buy it, you will have to hire someone for that work or spend your own time.

Example (prepared by the author, hypothetical figures). The owner of "Tandir nafasi" kneads the dough himself every day. If a baker doing this work has to be paid 2 million soums a month, that is 24 million a year. The real profit, that is, the profit left without the owner's labour: 60 − 24 = 36 million soums.

As you can see, 300 million is justified only when two conditions hold together: the profit really is 60 million, and a 20% annual return is enough for you. If the owner's labour is taken into account, at the same 20% the business is worth 180 million soums.

Before negotiating the price, check:

1. Where does the profit figure come from: do the bank statements, cash register data and tax reports match each other?
2. Will the tandir oven, the dough mixer and other equipment need replacing in the coming years? If so, deduct that cost from the annual profit too.
3. Are the premises rented? For how long is the lease, and in whose name?
4. Who are the customers attached to: the bakery or the owner himself?

This method is only a rough estimate: if the profit is growing or fluctuating, discounting the cash flows of future years gives a more accurate result.

No, this comparison is wrong. You produced 20% more output, so it is natural for volume-related costs — in this workshop, raw materials and piece-rate wages — to rise. The right question is: "how much should it have cost to produce 12,000 units?" For this a flexible budget is prepared: the plan is recalculated for the actual volume and then compared with the actual costs.

To do this, the planned costs have to be split in two: those that change with volume (how much per unit) and those that stay the same month after month regardless of volume.

Example (prepared by the author, hypothetical figures). The monthly plan of the "Ko'k gumbaz qadoq" workshop:

• raw materials: 6,000 soums per unit;
• piece-rate wages: 2,000 soums per unit;
• fixed costs (rent, management): 40 million soums a month.

For 10,000 units: 60 + 20 + 40 = 120 million soums. For 12,000 units: 72 + 24 + 40 = 136 million soums.

The result is the opposite of what the manager thought: taking volume into account, the workshop saved 4 million soums. But the table also shows one real problem: 2 million extra was spent on raw materials. Now the reason has to be found: did the price go up or did waste increase?

Do not rush to praise the 4 million saving on piece-rate wages either: if wages were not paid at the planned rate, this may be a calculation error or a delayed payment. A large variance is checked even when it is favourable.

Practical tip: keep the monthly budget in Excel with two columns, one for "per unit" rates and one for fixed amounts. Then, as soon as you enter the actual volume, the flexible plan calculates itself.

Do not rush: in most cases such a decision does not increase profit but reduces it. The reason is that this workshop's overheads — rent, salaries of management staff and security — do not disappear when shelving units are stopped. They now fall on the remaining products.

The right question: how much money do the shelving units leave towards overheads after covering their own variable costs (materials, piece-rate wages, packaging)? This amount is called the contribution margin.

Example (prepared by the author, hypothetical figures). Monthly figures of the "Chinor mebel" workshop, million soums. Overheads are 120 million and are allocated in proportion to revenue:

If shelving units are stopped: the contribution margin is 80 + 60 = 140 million, while overheads remain the same 120 million. Profit falls from 45 to 20 million soums. Even though the shelving units show a "loss", they were in fact contributing 25 million soums every month towards covering overheads.

When stopping shelving units may make sense:

1. If part of the overheads exists only because of the shelving units and really disappears when they are stopped. For example, if a separate warehouse for shelving units is rented for 10 million soums, profit becomes 140 − 110 = 30 million. This is still less than the current 45 million, so even in this case keeping the shelving units is more profitable.
2. If the freed-up machines and workers' time go to an even more profitable product. For example, if demand for tables is unlimited and extra tables instead of shelving units give more than 25 million soums of contribution margin.
3. If the contribution margin of shelving units is negative, that is, they do not even cover their own variable costs.

Allocating overheads is needed for accounting, but for the question "which product do we close?" allocated costs are misleading.

When money is limited, the goal is to maximise not the net present value (NPV) of a single project but the total NPV of the selected set of projects. Two methods are used for this, and they sometimes give different answers.

The first method: calculate how much NPV each project gives per 1 soum of investment (NPV ÷ investment) and choose starting from the most efficient. The second method: go through all the combinations that fit.

Example (prepared by the author, hypothetical figures). "Oltin vodiy savdo" is looking at four projects; NPV has already been calculated with discounting, million soums:

Under the first method, B (50) is chosen first, then C (50). Neither A (100) nor D (60) fits into the remaining 50 million. Total NPV = 38 million, and 50 million stays idle.

Now let us compare the combinations that fit into 150 million:

The best choice is A + B: a total NPV of 50 million. Even though A is in third place by "efficiency per 1 soum", it uses the money in full.

Conclusions:

1. If projects cannot be split (you cannot open half a shop), ranking by the ratio alone is not enough: go through the combinations. With four or five projects this is easy to do by hand or in Excel.
2. Take the leftover money into account too: in B + C the remaining 50 million could be put on deposit, but deposit interest is usually lower than the discount rate, so this money hardly increases NPV.
3. If projects depend on each other (for example, the online system is needed only if the new shop is opened), evaluate them as one package rather than separately.

The accountant is right: this is customer concentration risk. If one customer leaves, demands a sharp price cut or delays payment, the whole company suddenly finds itself in difficulty. It can be measured with three simple calculations.

1. The share of the largest customer and the share of the three largest. This is the quickest indicator.
2. The sum of squared shares. You take each customer's share in percent, square it and add them up. The bigger the result, the fewer customers the revenue depends on. If all customers are equal, the result is small; if there is only one customer, it reaches the maximum value — 10,000.
3. A "what if they leave?" stress test. This is the most important one.

Example (prepared by the author, hypothetical figures). The annual revenue of "Sarbon qadoq" is 1,000 million soums. Customer shares: 55%, 15%, 10%, 8%, 7%, 5%.

• Largest customer — 55%, three largest — 80%.
• Sum of squares: 3,025 + 225 + 100 + 64 + 49 + 25 = 3,488.

Stress test. The contribution margin is 30 percent of revenue, fixed costs are 200 million soums a year.

So if one customer leaves, instead of 100 million of profit there is a 65 million loss. Fixed costs do not fall quickly.

Ways to reduce the risk:

1. Look for new customers on purpose: for example, plan to reduce the largest customer's share by 5 percentage points every year.
2. A long-term contract with the large customer: it should set out volumes, the procedure for price changes and payment terms.
3. Monitor their debt separately: set a receivables limit and take action at once if it is exceeded.
4. A cash reserve: a reserve covering at least several months of fixed costs gives time to find a new customer if this one leaves.

Banks also look at this when lending: a company whose revenue depends on one customer looks riskier as a borrower.

This question is answered by the internal rate of return (IRR). It is the interest rate at which today's value of the future inflows is exactly equal to the money invested. In other words, IRR is the project's "own interest rate". You compare it with the cost of raising money: if IRR is higher than the loan rate, the project covers the debt and leaves a profit on top.

The fact that 140 million is more than 100 million does not mean anything yet, because 35 million arriving in year 4 is not equal to 35 million today.

Example (prepared by the author, hypothetical figures). "Qorasuv quti" LLC spends 100 million soums on a packaging line, and the line generates net cash inflows of 35 million soums every year for 4 years. To find the IRR, we discount the inflows at different rates and look for where the net present value (NPV) falls to zero:

NPV falls to zero between 14% and 15%: IRR ≈ 14.96%. In Excel this can be found with a single IRR function: enter −100, 35, 35, 35, 35 in the cells.

Conclusion: the project "earns" about 15% a year, while the loan costs 18%. If it is financed with a loan, the difference turns into a loss every year; at an 18% rate the NPV is −5.85 million soums. The "140 million in total" figure was misleading.

What can change the decision:

1. If the line keeps working after 4 years or is sold at the end, add that inflow to the table as well. For example, if 60 million (25 million from selling the old line) arrives in year 4 instead of 35 million, the IRR rises to about 21.3% and the project beats the 18% loan.
2. If there are negative years among the cash flows (a major repair in the middle), there may be more than one IRR. In that case, rely on NPV.
3. When choosing between two projects, do not look only at IRR: a small project can have a high rate but little profit in soums. Compare NPV too.

This is currency (exchange rate) risk. You work in soums, but the obligation is in dollars: if the rate rises, you pay more soums for the same debt. There are essentially three ways to reduce the risk:

1. Buy the dollars now. The cost in soums becomes known today. The price: those soums cannot work anywhere else for 3 months (for example, they earn no interest on a deposit).
2. Buy in instalments. You buy part of the amount now, part in the middle, and the rest on the payment date. The result will be close to the average rate: neither the best nor the worst.
3. Wait and leave the risk open. If the rate falls you win, if it rises you lose.

There are also two "natural" routes: agreeing to set the contract in soums or at a fixed rate, and, if you have dollar revenue (exports), closing the payment with that revenue.

Example (prepared by the author, hypothetical figures). For "Chorvoq jihoz" LLC, today's rate is hypothetically 12,000 soums. Soums taken out now would have earned 2% on a deposit over 3 months, so the extra cost of buying now is 240 million × 2% = 4.8 million soums. When buying in instalments, one third is bought now, one third after 1.5 months (at the average rate at that time, lost income 1%), and the rest on the payment date.

The table shows the choice: "buying now" costs 244.8 million in every case — certain, but more expensive if the rate falls. The result of "waiting" is spread from 230 to 260 million. "Buying in instalments" narrows the range.

How do you choose? The main question: would an unexpected difference of 30 million soums put the company in a difficult position? If this amount is larger than your monthly profit, do not leave the risk open. When exchanging, also take into account the difference between the bank's selling and buying rates: buying dollars and selling them back several times is an extra cost.

The accountant is right. When sales grow, it is not so much cash that grows as "paper" assets: there is more stock in the warehouse and customers owe more. Money is needed to finance them. The credit period given by suppliers covers part of this, and the company has to find the rest itself.

The working capital needed can be estimated through days:

• customer receivables = annual sales : 365 × payment days;
• stock in the warehouse = annual cost of sales : 365 × stock days;
• payables to suppliers = annual cost of sales : 365 × days to pay them;
• funds needed = customer receivables + stock − payables to suppliers.

Example (prepared by the author, hypothetical figures). At "Bekobod plitka" LLC, cost of sales is 75% of sales, customers pay in 30 days on average, goods stay in the warehouse for 45 days, and suppliers are paid in 20 days. The cash conversion cycle: 30 + 45 − 20 = 55 days.

Growth needs about 240.41 − 160.27 = 80.14 million soums extra. This money is needed before the sales start or during the growth, while the profit comes later. That is why even fast-growing, profitable companies run short of cash.

Ways to reduce the need:

1. Shorten the payment period with customers: with 20 days instead of 30, almost 49 million soums are freed up at 1.8 billion of sales.
2. Reduce stock: order slow-moving goods more often but in smaller quantities.
3. Ask suppliers for a longer credit period, but check that you are not giving up an early payment discount.
4. Arrange financing for the remaining shortfall in advance: rushing to the bank in the middle of growth is usually more expensive.

Advertising is conveniently evaluated with two figures:

• customer acquisition cost = advertising spend : number of new customers;
• customer lifetime value = the gross profit a customer brings in a month × the average number of months they stay with us.

If lifetime value is greater than acquisition cost, the advertising pays off. Importantly, gross profit is used, not revenue, because the cost of the goods is spent anyway.

Example (prepared by the author, hypothetical figures). The "Lola gul" shop:

Every 150 thousand soums of advertising brings 384 thousand soums of gross profit. But this is profit before fixed costs are deducted, so a ratio just above 1 is not enough.

The most sensitive point is "how many months they stay". If customers stay 3 months instead of 8: 48,000 × 3 = 144,000 soums, a ratio of 0.96. The advertising now makes a loss, even though the number of customers is the same. So keeping customers (quality, service, reminder messages) can have a stronger effect than increasing the advertising budget.

Practical tips:

1. Ask every new customer "where did you find us?", otherwise you will not know how many of the 40 customers came from the advertising.
2. Count advertising channels separately: one may bring a customer for 100 thousand, another for 300 thousand soums.
3. Update the calculation every quarter: if the margin or how long customers stay changes, the conclusion changes too.

There is no single correct amount, but you can find it from your own data. The clearest method: take last year's monthly net cash flow (inflows minus outflows) and determine the most money that consecutive bad months "ate up". The reserve should not be less than this amount.

Example (prepared by the author, hypothetical figures). Monthly net cash flow of "Zomin asal" LLC last year, million soums:

Overall the year closed at +18 million, but from month 7 to month 10 consecutive outflows took the balance from 19 down to −9, that is, by 28 million soums. In months 3–5 the fall also reached 27 million. So if you moved surplus money to a deposit each time and kept only the reserve in the bank account, the reserve would have needed to be at least 28 million soums.

It makes sense to add a safety layer on top of this: next year may turn out worse than last year. It is convenient to measure it by the most unavoidable payments: one month's salaries and rent.

Where to keep the reserve:

1. Part of it in the bank account, for day-to-day payments.
2. The rest in short-term deposits that can be withdrawn quickly: the money is available when needed and earns a little income.
3. Money above the reserve can be placed for a longer term or put into the business itself.

Update the table every year and add new loan repayments and the salaries of new employees in advance.

This is a "target savings" problem. If you put in the same amount every month and interest is credited on it, the final sum consists of two parts: the money you put in yourself and the interest earned on that money. The more the interest works, the less you need to set aside each month.

Without interest the calculation is very simple: 240,000,000 : 36 months = 6,666,667 soums a month. With interest, however, each month's payment works for a different length of time: the amount put in during the first month earns interest for 35 months, while the last one earns almost none. This is calculated with a single factor:

Factor = ((1 + monthly rate)^number of months − 1) : monthly rate Monthly amount = target : factor

Example (prepared by the author, hypothetical figures). "Sarbon non" LLC puts money into a savings account at the end of each month; we assume, hypothetically, that interest of 1.5% a month is added to the balance every month.

So with interest, setting aside about 5.08 million soums a month is enough, not 6.67 million.

Practical tips:

1. Base the target amount not on today's price but on the expected price three years from now: the price of the oven may also change.
2. Keep the savings in a separate account from your everyday working money, otherwise they will "quietly" be spent.
3. Update the calculation every year: if the rate changes or a month is missed, recalculate the amount for the remaining months.

Finance has a simple rule of thumb for this: if a company consistently earns the same return on every soum of its equity, its profit grows at roughly this rate:

Growth rate ≈ return on equity × share of profit retained

The logic is this: money paid out as dividends leaves the company, while retained money is added to equity and earns profit again the next year.

Example (prepared by the author, hypothetical figures). The equity of "Yashil vodiy" LLC is 500 million soums, the return on equity is hypothetically 20%, so the annual profit is 100 million soums.

Let us check the second row with the formula: 20% × 0.6 = 12%.

An important condition: this calculation holds only if the retained money can also be put to work at the same return. If the business has no way to invest new money profitably (the market is saturated, no extra equipment is needed), the retained profit sits idle in the bank account and no growth comes of it. In that case it makes more sense to pay the founders more dividends.

Questions for the decision: where will we spend the new money and how much will it return? Is that higher than the alternative income the founders could earn themselves? If the answer is "yes", retaining part of the profit pays off.

The difference between budgeted and actual costs can be split into three parts: the price variance (a kilogram bought dearer or cheaper), the usage variance (more or less than the standard used per product) and the volume variance (more or fewer products made than planned). Each has a different owner: purchasing for price, the workshop for usage, sales for volume.

How to calculate:

• price variance = (actual price − budgeted price) × actual usage;
• usage variance = (actual usage − standard usage for the actual volume) × budgeted price;
• volume variance = (standard usage for the actual volume − budgeted usage) × budgeted price.

Example (prepared by the author, hypothetical figures). The budget of the "Oqtepa pishiriqlari" workshop: 1,000 cakes, 2 kg of flour each, 25,000 soums per 1 kg. Actually: 1,050 cakes were made, 2,150 kg of flour was used, bought at 26,000 soums per 1 kg.

Check: 2,150,000 + 1,250,000 + 2,500,000 = 5,900,000 soums.

Conclusion: the supplier's price explains only 2.15 million soums of the difference. 2.5 million soums is due to making 50 extra cakes, which is not bad, since sales grew too. The real question is the usage variance of 1.25 million soums: the workshop used 2,150 kg of flour instead of the standard 2,100 kg. The cause needs to be found together with the workshop.

Practical tip: build the budget not just as a "total amount" but as "volume × standard × price"; then this analysis takes only a few minutes at the end of the month.

This is shown by the discounted payback period. In the simple payback period, each year's inflow is treated as equal to today's money. In the discounted method, each year's inflow is first brought to its present value, and then you count how many years it takes for these discounted amounts to cover the investment:

Discounted inflow = inflow of the year : (1 + discount rate)^year number

The discount rate is usually the alternative return on that money: the loan interest rate or the return the founders expect.

Example (prepared by the author, hypothetical figures). "Tog'ay sut" LLC bought packaging equipment for 120 million soums. The equipment works for 6 years and brings in 40 million soums of net cash inflow every year. The discount rate is hypothetically 20% a year.

Simple calculation: 120 : 40 = 3 years.

At the end of year 5 the balance is still −0.38 million; in year 6 it turns positive: 5 + 0.38 : 13.40 ≈ 5.03 years. In other words, instead of the 3 years of the simple calculation, the money actually comes back in almost 5 years, while the equipment's useful life is 6 years. Very little margin is left.

What to watch for:

1. The higher the discount rate, the longer the period. Justify your choice of rate and test the decision at two or three different rates.
2. If the discounted payback period exceeds the equipment's useful life, the project does not pay off at this rate.
3. The method ignores the years after payback. So for the final decision use it together with net present value: in this example the net present value over 6 years is +13.02 million soums.

Scenario analysis and expected value are used for this. Several possible situations (good, average, bad) are written down, each is given an outcome and a probability, then the outcomes are multiplied by the probabilities and added up:

Expected value = outcome₁ × probability₁ + outcome₂ × probability₂ + outcome₃ × probability₃

The probabilities must add up to 100%.

Example (prepared by the author, hypothetical figures). "Gulzor kiyim" LLC plans to spend 80 million soums on a branch. For the first year's result the team agreed on three scenarios.

The expected result is 25 million soums a year. Now it can be compared with an alternative: say expanding the existing shop would almost certainly bring 22 million soums. By expected value the branch is better (25 > 22), but its result ranges from −20 to +60.

So do not look only at the expected value; ask two more questions:

1. Can the company survive the worst scenario? How much would a loss of 20 million soums plus an investment of 80 million soums drain the cash?
2. What are the probabilities based on? Tie them to the history of similar branches or to market observation; a probability written down "roughly" spoils the whole calculation.

Practical tip: track the scenarios during the year. Whichever scenario the first quarter's result comes closest to, adjust the decision for the rest of the year (for example, on additional spending) accordingly.

The difference becomes income not all at once but in parts until the bond is redeemed. Under paragraph 241 of NAS No. 21, a short-term bond is recorded in account 5810 "Securities" at its acquisition cost, and the difference between the acquisition cost and the face value is reflected, until redemption, on the debit of 5810 (additional accrual) in correspondence with 9590 "Other income from financial activities". By the redemption date the value in 5810 must equal the face value.

Example (prepared by the author, hypothetical figures). "Qorasuv savdo" LLC bought bonds with a total face value of 50,000,000 soums for 47,300,000 soums, with 9 months left until redemption. Difference: 50,000,000 − 47,300,000 = 2,700,000 soums. The accounting policy chooses to spread the difference evenly over the months: 2,700,000 : 9 = 300,000 soums a month (the standard does not set an allocation method; it only requires the final value to equal the face value).

Balance of 5810 after 9 months: 47,300,000 + 300,000 × 9 = 50,000,000 soums, so after the redemption entry the account falls to zero.

How much this bond "earns": 2,700,000 : 47,300,000 ≈ 5.71% for nine months; annualised, roughly 5.71% × 12 : 9 ≈ 7.61% (simple calculation, without coupon payments). If the bond also pays a coupon, that is separate interest income.

The reverse case: if a bond is bought above face value, the excess is written off until redemption from the credit of 5810 to 9690 "Other expenses on financial activities" (paragraph 241).

A loan granted to another organisation for up to 12 months is a short-term investment and is kept in account 5830 "Short-term loans granted" (NAS No. 21, paragraphs 240 and 242). If the term is longer than 12 months, the loan is accounted for within long-term investments (0600) (paragraph 53). The loan amount and the interest are not mixed: interest goes through 4830 "Interest receivable" and 9530 "Interest income".

Example (prepared by the author, hypothetical figures). "Yangiyer qurilish" LLC lent a partner 60,000,000 soums. The agreement says: 6 months, simple interest of 18% a year, interest and loan repaid at the end of the term. Monthly interest: 60,000,000 × 18% : 12 = 900,000 soums; for 6 months, 5,400,000 soums.

Accruing interest every month shows each month's income correctly: the books do not get a one-off "jump" of 5,400,000 soums in month 6.

Practical tip: unlike a bank deposit, here there is a risk that the partner will not repay. Before lending, review the partner's latest balance sheet and state the term, the interest and the liability for late payment clearly in the agreement. Overdue interest is kept separately in 4830 (paragraph 210), so a delay is visible at once.

No, it is not a profit. The amount received above face value on the initial sale of shares is additional capital and is recorded on the credit of account 8410 "Share premium" (NAS No. 21, paragraphs 349 and 350). It does not go to the income accounts 9000–9500, which means it does not appear in the statement of financial results; it sits in the equity section of the balance sheet. The shares themselves are recorded in charter capital only at face value (paragraph 346).

Example (prepared by the author, hypothetical figures). "Chinor ip" JSC placed 20,000 additional shares with a face value of 10,000 soums each at 12,500 soums each.

Costs related to issuing and placing the shares are not deducted from 8410: they are recorded separately on the debit of 9630 "Expenses for issuing and placing securities" (paragraph 425).

Why this matters: if the 50,000,000 soums is mistakenly recorded as income, the year's profit is artificially inflated, and the profit the founders think "exists" turns out to be money they contributed themselves.

First, charter capital is recorded at the amount in the founding document and sits in 4610 as the founders' debt. Then that debt is closed in whatever form each founder contributes his share (NAS No. 21, paragraphs 197 and 347). If a fixed asset is contributed instead of money, 4610 is credited in correspondence with the account for fixed assets (paragraph 197). About property contributed in kind for shares, paragraph 197 says it "is recorded at the value determined on the basis of the founders' agreement"; in an LLC, however, charter capital is made up of the shares set in the founding documents (paragraph 347), so the value of the machine must match the share amount in the founding document. Analytical accounting for 4610 is kept separately for each founder (paragraph 197).

Example (prepared by the author, hypothetical figures). The charter capital of "Oltinsoy mebel" LLC is 300,000,000 soums. Akmal contributes 180,000,000 soums in money, and Bobur hands over a wood-cutting machine that the founders valued at 120,000,000 soums. Shares: 180 : 300 = 60% and 120 : 300 = 40%.

After that, no balance remains in 4610: both founders have contributed their shares in full. If part of a share has not yet been contributed, that amount stays in 4610 as that founder's debt and is visible on the balance sheet.

Practical tip: make sure the value of the machine agreed by the founders in the handover certificate fully matches the amount in the founding document. Later, the machine's depreciation will be calculated from this initial cost of 120,000,000 soums.

Under paragraph 361 of NAS No. 21, limited liability companies record a share in charter capital bought for transfer to other participants or to a third party in the accounts of group 8600 "Treasury shares (repurchased own shares)". Under paragraph 360, 8600 is a contra-liability account to the 8300 accounts that record charter capital (the part of the paragraph about deduction on the balance sheet is written about joint-stock companies). The debt to the withdrawing participant is kept in account 6620 "Payables to withdrawing founders for their shares" (paragraph 283). On resale, the difference above the buy-back price is recorded in 9590 "Other income from financial activities"; if it is sold at a lower price, the difference is recorded in 9690: the table in paragraph 362 gives this for "own shares (units)" (lines 2 and 3).

Example (prepared by the author, hypothetical figures). "Sarbon logistika" LLC bought out a withdrawing participant's share for 40,000,000 soums and three months later sold it to a new partner for 46,000,000 soums. Difference: 46,000,000 − 40,000,000 = 6,000,000 soums.

For the three months the share is held by the company, 8610 carries a debit balance of 40,000,000 soums. Because this is a contra-liability balance, equity appears smaller by that amount. Set in the accounting policy on which line of the LLC's balance sheet to show it.

Note: the procedure and deadlines for buying out a share, distributing it or selling it are set by the charter and the law. This answer covers only the accounting entries.

The answer depends on how many trips you make a month. In one option a large part of the cost is fixed (you pay even if there are no trips), in the other everything is variable (you pay only for trips). The volume at which the total cost of the two options is equal is called the indifference point. Below this volume the variable-payment option is cheaper; above it, the fixed-payment option is cheaper.

Formula: indifference point = difference in fixed costs : difference in variable costs per unit.

Example (prepared by the author, hypothetical figures). The "Sharq mebel" shop delivers furniture to customers:

Indifference point: 18,000,000 : (450,000 − 150,000) = 18,000,000 : 300,000 = 60 trips a month.

If the shop makes an average of 70 trips a month: A = 18,000,000 + 10,500,000 = 28,500,000 soums, B = 31,500,000 soums, i.e. A is 3,000,000 soums a month cheaper.

Do not be misled by the average. If trade is seasonal, calculate month by month. For example, even if there are 90 trips in 6 months of the year and 30 trips in the other 6 months, the average comes out at 60 trips. But with option A the rent is paid in quiet months too: over the year A = 6 × (18,000,000 + 90 × 150,000) + 6 × (18,000,000 + 30 × 150,000) = 6 × 31,500,000 + 6 × 22,500,000 = 324,000,000 soums. B = 6 × 40,500,000 + 6 × 13,500,000 = 324,000,000 soums. The result is equal, but in quiet months option A weighs more heavily on cash flow.

What to consider besides the numbers: the fixed-payment option is riskier when volume falls, because the rent is paid anyway. The variable-payment option is flexible, but if the carrier is busy, delivery may be delayed. Also compare the term of the lease agreement and the conditions for terminating it.

Not the product that gives more profit per unit, but the product that gives more contribution margin per hour of the limited resource. If machine time is in short supply, it is exactly this time that "earns" the money.

Example (prepared by the author, hypothetical figures). The "Usta mebel" workshop:

Looking per unit, the cabinet door is more profitable. Looking per hour, the shelf is more profitable. Let us compare two plans:

Plan B gives 7,140,000 − 6,500,000 = 640,000 soums more a month. Fixed costs are the same under both plans, so profit is higher by the same amount.

Practical tip: this rule works only when a single resource is limited. If machine time is extended with an extra shift or a second machine, redo the calculation. Also bear in mind that turning down a regular customer's door order completely may lead to losing that customer.

The simplest way is the high-low method. Take the two months with the highest and the lowest volume of work. If you divide the difference in costs by the difference in volumes, you get the variable cost per unit of volume. The rest is fixed cost.

Example (prepared by the author, hypothetical figures). The "Temirchi" workshop:

The highest point is April (900 hours, 41.0 million), the lowest is February (400 hours, 26.0 million).

• Variable cost per hour: (41,000,000 − 26,000,000) : (900 − 400) = 15,000,000 : 500 = 30,000 soums.
• Monthly fixed cost: 41,000,000 − 900 × 30,000 = 41,000,000 − 27,000,000 = 14,000,000 soums.
• Check for February: 14,000,000 + 400 × 30,000 = 26,000,000 soums.

Formula: cost = 14,000,000 + 30,000 × hours. If 700 hours are planned for July: 14,000,000 + 21,000,000 = 35,000,000 soums.

Limitations: the method relies on only two months. If one of those months is unusual (a major emergency repair), the result is distorted — set such a month aside and take the next highest or lowest month. Look at how far the other months deviate from the formula: in this example the difference does not exceed 0.5 million soums in any month.

Why this split is needed: it is precisely the fixed and variable parts that you need to find the break-even point, the effect of a price change, or to compare two options with different cost structures.

Here two costs move in opposite directions:

If goods sell evenly, the average stock in the warehouse equals half of one batch. So the total annual cost = (annual requirement : batch) × cost of one order + (batch : 2) × cost of holding one unit for one year. The batch at which the total cost is lowest is called the economic order quantity, and it is found with the Wilson formula: √(2 × annual requirement × cost of one order : cost of holding one unit for one year).

Example (prepared by the author, hypothetical figures). The "Qurilish bozori" shop: annual requirement 2,400 bags; one order (truck and unloading) 750,000 soums; holding one bag for one year 10,000 soums.

By the formula: √(2 × 2,400 × 750,000 : 10,000) = √360,000 = 600 bags. So ordering 4 times a year, 600 bags every 3 months, is the cheapest. Saving: 10,000,000 − 6,000,000 = 4,000,000 soums a year.

A check: at the optimal point the ordering cost equals the holding cost (3,000,000 = 3,000,000). In the table the total cost changes slowly around the optimal point (800 bags instead of 600 — a difference of only 250,000 soums), so the batch can be rounded a little to fit the truck's capacity.

Limitations: the formula assumes that demand is even and costs are constant. Warehouse capacity, the shelf life of the goods, the supplier's discount for a large batch and extra stock for unexpected demand are taken into account separately. Do not forget to include in the holding cost the price of the money tied up in goods (the income that money could earn elsewhere).

The longer the credit term, the longer your money stays with the buyer, and you have to cover that gap with borrowing. Its cost can be calculated simply: average receivables × interest rate on borrowing.

Example (prepared by the author, hypothetical figures). The wholesale firm "Qo'qon don" sells this buyer goods worth 100,000,000 soums a month. The overdraft interest is assumed, hypothetically, to be 2% a month (simple interest). Gross profit is 15% of sales.

Average debt = monthly sales × payment term (in months): for 30 days 100,000,000 × 1, for 60 days 100,000,000 × 2.

Result: extending the term costs an additional 2,000,000 soums a month. This is about 13% of the monthly gross profit earned from the buyer (100,000,000 × 15% = 15,000,000 soums).

When the condition can be accepted: if the buyer increases purchases in return, the additional gross profit must be at least 2,000,000 soums. That is, at least 2,000,000 : 15% ≈ 13,333,333 soums of additional sales a month are needed (about 13.3% growth). A more precise calculation should add that the additional sales themselves will also be on credit — this raises the required growth a little further.

This calculation does not yet include the risk of the debt not being repaid: the longer the term, the greater this risk. So give the extended term only to buyers with good payment discipline and write liability for late payment into the contract.

To compare them, you need to bring both to the same measure, the effective annual rate. If interest is added to the principal each month, the next month's interest is calculated on this increased amount, so the actual growth by year-end turns out higher than the announced rate.

Formula: effective rate = (1 + annual rate / 12)^12 − 1.

Example (compiled by the author, hypothetical rates). A depositor wants to deposit 10,000,000 soums.

The effective rate of offer A is about 26.82%, i.e. higher both than the announced 24% and than the 25% in offer B. Offer A is better for the depositor: the difference is 182,418 soums.

When borrowing, the logic is reversed: the more often interest is capitalised, the more expensive it is for the borrower.

Tip: when comparing offers, always ask two questions: how often is interest added, and what happens if you withdraw early?

Yes, financiers use the "rule of 72" for this: divide 72 by the annual compound interest rate (in percent), and you get the approximate doubling time.

Doubling time ≈ 72 / annual rate.

Let's check (calculation compiled by the author):

As you can see, the rule gives a very close result, but it is an approximation, not an exact formula.

The rule can also be used in reverse. If a business plan says "we will double the capital in 4 years", that means growth of about 72 / 4 = 18% a year. Exact check: 1.18^4 ≈ 1.94, i.e. slightly short of doubling.

It also applies to inflation: if prices rise by X% every year, the purchasing power of money halves in roughly 72 / X years.

Tip: if someone says "your money will double in 3 years", you immediately see that an annual return of 72 / 3 = 24% is being promised. Be sure to ask what such a promise is based on and what the risks are.

No, profit usually changes faster than sales. The reason is fixed costs (rent, administrative staff salaries): they stay put even when sales change. This effect is called operating leverage.

Degree of operating leverage = contribution margin / operating profit, where contribution margin = revenue − variable costs.

Example (compiled by the author, hypothetical figures). Monthly figures of the "Chorsu non" bakery, million soums:

Degree of leverage = 40 / 10 = 4. So a 1% change in sales changes profit by about 4%: when sales rose 10%, profit went from 10 to 14 (+40%); when sales fell 10%, from 10 to 6 (−40%).

Practical conclusion: a business with high fixed costs gets rich quickly in good months and slips into a loss quickly in bad ones. Before adding a new fixed cost (for example, additional rent), calculate the degree of leverage and check how close you are to the break-even point.

For this, the weighted average cost of capital (English abbreviation WACC) is calculated. Each source has a "price": for the bank it is the loan interest, for the founders it is the return they expect on their own money. The average cost is found by multiplying the price of each source by its share in total capital and adding them up.

WACC = (equity share × return expected by founders) + (debt share × loan interest).

Example (compiled by the author, hypothetical rates, tax effect ignored for simplicity). "Termiz sement" has capital of 500 million soums:

So if a project returns less than 18% a year, it does not cover the "price" of capital. For example, a project returning 16% is enough to pay the bank's interest, but cannot provide the return the founders expect.

This indicator is also used as the discount rate in calculating net present value (NPV): the project's future cash flows are brought to present value at exactly this rate.

Tip: do not guess the return the founders expect; agree on it openly with them and record it in the minutes of decisions.

Either can happen. This is the financial leverage effect: if the return generated by assets is higher than the loan interest, debt increases the return on equity; if it is lower, debt reduces it. Debt works like a "magnifying glass": it enlarges both the good and the bad.

Example (compiled by the author, hypothetical figures, tax ignored for simplicity). The founders of "Kattaqo'rg'on tekstil" contributed capital of 200 million soums. Two options: A — own money only; B — an additional loan of 100 million soums (hypothetical 15% interest).

Case 1: assets return 20% a year.

Case 2: the market slows and assets return 10% a year.

Conclusion: when the return on assets (20%) is higher than the loan interest (15%), the loan is beneficial; when it is lower (10%), it is harmful. And interest is paid regardless of how the market goes.

Tip: before taking a loan, also calculate a "bad year" scenario as above.

Not all current assets turn into cash equally quickly. Inventory in the warehouse must first be sold, and then the money must be collected. That is why, in addition to the current ratio, analysts also calculate the quick ratio: (current assets − inventories) / current liabilities.

This ratio answers the question: "If nothing is sold from the warehouse from today on, how far can we cover our short-term debts?" If the current ratio is good but the quick ratio is low, the money is "frozen" in inventory.

Example (prepared by the author, hypothetical figures): at "Barakali qurilish mollari" current assets are 300 mln soum, of which inventories are 180 mln, accounts receivable 70 mln and cash 50 mln; current liabilities are 200 mln. Current ratio = 300 / 200 = 1.5. Quick ratio = (300 − 180) / 200 = 0.6. That is, without inventory, there are only 60 tiyin for every 1 soum of short-term debt: the problem is slow-moving goods in the warehouse.

This is shown by the break-even point. First we split costs into two groups: fixed (rent, management salaries, not dependent on sales) and variable (raw materials, packaging, incurred per unit). Subtracting the variable cost from the unit price gives the contribution margin: the amount each unit contributes towards covering fixed costs.

Break-even point (units) = monthly fixed costs / contribution margin per unit. Every unit sold above this number brings net profit (ignoring taxes).

Example (prepared by the author, hypothetical figures): "Charm ustaxona" sells a wallet for 25 000 soum, and the leather and thread for one wallet cost 15 000 soum. The contribution margin is 10 000 soum. Monthly rent and salaries are 18 000 000 soum. Break-even point = 18 000 000 / 10 000 = 1 800 units, that is, sales of 45 000 000 soum. If 2 000 units are sold, the profit is 200 × 10 000 = 2 000 000 soum.

No. Return on assets (ROA) = net profit / average assets. It shows how efficiently the company uses all the resources at its disposal, regardless of who financed them. Return on equity (ROE) = net profit / average equity. It shows how much profit each soum invested by the owners brings.

The difference between the two ratios comes from debt. The more debt there is, the higher ROE can be compared with ROA. But this is not necessarily good news: a high ROE may also be the result of a lot of debt, that is, high risk.

Example (prepared by the author, hypothetical figures): "Nur farm" has net profit of 24 mln soum, average assets of 300 mln and average equity of 120 mln (the remaining 180 mln is debt). ROA = 24 / 300 = 8%. ROE = 24 / 120 = 20%. For the founder 20% is attractive, while the bank looks at the fact that the assets yield a profit of only 8% and that 60% of the assets are financed by debt.

Two ratios are needed. Inventory turnover (times) = annual cost of goods sold / average inventory. Turnover period (days) = number of days in the year / number of turns. Cost is used rather than revenue, because inventory is also carried at cost.

Average inventory can be taken as the average of the opening and closing balances for the year, but in a seasonal business the average of the monthly balances is more accurate. The result should be compared with last year and with similar shops: a single number on its own does not say whether things are "good" or "bad".

Example (prepared by the author, hypothetical figures): the annual cost of goods sold at "Asl kiyim" is 360 mln soum, inventory at the start of the year is 50 mln and at year-end 70 mln. Average inventory is 60 mln. Turnover = 360 / 60 = 6 times. Taking the year as 360 days, goods stay in the warehouse for 60 days on average. If a competitor's figure is 40 days, "Asl kiyim" is constantly financing 20 days' worth of excess goods.

This is the cash conversion (financial) cycle. The formula is simple: inventory turnover period + receivables collection period − payables payment period (all in days). The result shows how many days the company has to "wait" using its own money or a loan.

There are three ways to shorten the cycle: sell inventory faster, collect from customers faster, and agree longer payment terms with suppliers. Be careful with the last one: paying late damages the business relationship.

Example (prepared by the author, hypothetical figures): at the "Sog'lom ovqat" wholesale firm, inventory turns over in 60 days, customers pay in 25 days, and the firm pays its suppliers in 35 days. Cycle = 60 + 25 − 35 = 50 days. If the cost of daily purchases is 2 mln soum, the firm must constantly "hold" about 50 × 2 = 100 mln soum in circulation.

The simplest method is the payback period: calculating how many years pass until the investment amount is covered by the annual net cash inflow. If the cash inflow is the same every year: payback period = investment / annual net cash inflow. If it differs, the inflows are accumulated year by year.

The method is quick and easy to understand, but it has two drawbacks: it ignores the time value of money (a soum next year is worth less than today) and it disregards the inflows after payback altogether. So it is good as a first "filter", but a discounted calculation is also needed for the final decision.

Example (prepared by the author, hypothetical figures): "Musaffo suv" wants to buy packaging equipment for 100 mln soum. The equipment generates an additional net cash inflow of 40 mln soum every year. Payback period = 100 / 40 = 2.5 years. The second option, another piece of equipment costing 100 mln soum, generates 10 mln in the first year and then 60 mln every year: 10 + 60 = 70 (2 years), and the remaining 30 mln is covered halfway through the third year, that is, also 2.5 years. The period is the same, but the cash flows differ.

Not necessarily. Future money is not equal to money today: it could have been invested elsewhere to earn interest. That is why each future inflow is brought to its present value at the required rate of return (discounted): present value = inflow / (1 + r)^n, where n is the number of years.

Net present value (NPV) = sum of discounted inflows − initial investment. If NPV is positive, the project yields more than the required return; if it is negative, it is better to put the money into an alternative at that rate.

Example (prepared by the author, hypothetical figures): "Yulduz bosmaxona" invests 100 mln soum, and the project returns 40 mln every year for three years. The required rate is 10%. Present values: 40 / 1.1 = 36.36; 40 / 1.21 = 33.06; 40 / 1.331 = 30.05. Total 99.47 mln. NPV = 99.47 − 100 = −0.53 mln soum. A project that showed a 20 mln "profit" when simply added up does not pay off at a required return of 10%.

This ratio shows how many times the company's operating profit can cover the interest on loans. Interest coverage ratio = profit before interest and corporate profit tax / interest expense. Profit before interest and tax is used because interest is paid out of precisely this profit.

The higher the ratio, the greater the ability to pay interest even if profit falls. If it is below 1, the company cannot cover interest from its operating profit. For the bank, it is important to look at this figure over time (several years): a downward trend is a warning sign.

Example (prepared by the author, hypothetical figures): "Ishonch avto" has profit before interest and tax of 48 mln soum and annual interest expense of 12 mln. Ratio = 48 / 12 = 4. If a new loan is taken, interest rises to 24 mln and the ratio drops to 2: if profit halves, paying the interest alone will eat up the entire profit.

With an annuity, the same amount is paid every month: at first a large part of it is interest, and then the share of principal grows. With differentiated payments, the principal is repaid in equal instalments and interest is charged on the outstanding debt, so the payment is large at the start and then decreases.

At the same rate and term, total interest is usually lower with differentiated payments, because the principal decreases faster. But the burden is heavier in the first months. For a new business with uneven cash flow, the equal annuity payment may be more convenient.

Example (prepared by the author, hypothetical figures): "Ziyo print" takes a loan of 30 mln soum for 3 months at 2% per month. Differentiated: principal of 10 mln a month, interest of 600 000, 400 000 and 200 000; payments of 10.6 mln, 10.4 mln and 10.2 mln; total interest 1 200 000 soum. Annuity: about 10 402 640 soum each month, total interest about 1 207 920 soum. Over a short term the difference is small, but on a long-term loan it grows considerably.

Prepare a monthly cash budget (cash flow plan). It is a simple table: for each month, the opening balance, expected receipts (customer payments, loans), planned payments (suppliers, wages, rent, taxes, loan repayments) and the closing balance. The closing balance becomes the opening balance of the next month.

The key point: receipts are entered not on the day of sale but on the day the money is actually expected to arrive. Then it becomes visible in advance that in a month with many credit sales profit is high but cash is short, and there is time to arrange a loan or agree payment terms.

Example (prepared by the author, hypothetical figures): "Diyor qadoq" has 10 mln soum at the start of January. In January receipts are 40 mln and payments 35 mln: 15 mln at the end. In February receipts are 20 mln (credit sales are collected in March) and payments 45 mln (raw material stock): −10 mln at the end. Already in January the table showed the firm that it needed to look for at least 10 mln soum of short-term financing for February.

Return on sales based on net profit = net profit ÷ sales revenue × 100%. It shows how many soum of net profit remain from every 100 soum of revenue. Both figures are taken from the statement of financial results.

Example: the "Shirin non" bakery. Last year: revenue 300 mln, net profit 30 mln, return 10%. This year: revenue 400 mln, net profit 32 mln, return 8%. Revenue has grown by 1/3, profit has barely moved, and the profit left from every 100 soum has fallen from 10 soum to 8 soum.

Next step: compare expenses as a percentage of revenue (cost of sales, rent, wages). Whichever has grown faster than revenue is where the profitability is "leaking".

Net working capital = current assets − current liabilities. That is, how much of the resources that will turn into cash within the next 12 months remains after covering the debts payable within the next 12 months. Because under NAS No. 1 current and long-term items are shown separately on the balance sheet, both figures are on the balance sheet itself.

Example: on the balance sheet of "Toshloq savdo", current assets are 260 mln soum (inventories 140, receivables 90, cash 30) and current liabilities are 190 mln. Net working capital: 260 − 190 = 70 mln soum.

Note: a positive figure does not necessarily mean all is well. If half of the 140 mln of inventories is obsolete goods, the real resources available to pay debts are much smaller. So read the figure together with its composition.

For this, the financial independence (autonomy) ratio is used: equity ÷ total assets (balance sheet total). It shows what share of the assets has been formed from the owners' own funds. The rest is financed by liabilities, that is, by debt.

Example: the balance sheet total of "Bo'ston mebel" is 600 mln soum, equity is 330 mln and liabilities are 270 mln. Ratio: 330 ÷ 600 = 0.55. That is, of every 100 soum of property, 55 soum is own funds and 45 soum is debt.

Do not limit yourself to one year: look at the ratio's trend over several years. If it is falling every year, the company is financing its growth more and more with debt, which increases the burden of interest and repayments.

In two steps. First, the turnover ratio: annual revenue ÷ average accounts receivable. Average receivables = (opening + closing) ÷ 2. Then the collection period: number of days in the year ÷ turnover ratio.

Example: "Ulug'bek kafel" has annual revenue of 360 mln soum, receivables of 40 mln at the start of the year and 50 mln at the end, an average of 45 mln. Turnover: 360 ÷ 45 = 8 times. Taking the year as 360 days, the collection period is 360 ÷ 8 = 45 days. The contract, however, sets a payment term of 30 days.

So customers are on average 15 days late, and this money is being held out of the company's turnover. Practical step: group debtors by age (up to 30 days, 31–60, over 60) and start with those most overdue.

When the dividend is declared, the company has a receivable. Under NAS No. 21 (paragraphs 415 and 421): Dt 4840 "Dividends receivable" – Ct 9520 "Dividend income". This is income from financial activities, not revenue from the main activity.

When the money reaches the bank, the receivable is closed: Dt 5110 – Ct 4840 (examples in paragraph 216). Because 9520 is a transit account, it is closed to the final financial result at the end of the period.

Example: a dividend of 12 000 000 soum was declared on "Zomin invest"'s stake in "Chimyon suv". In the month of declaration: Dt 4840 – Ct 9520 12 000 000; on the day the money arrives: Dt 5110 – Ct 4840 (for the amount actually received in the bank). If the amount received differs from the amount declared, ask the payer in writing for the reason.